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Main Points behind SBV Oscillator
- Intraday volume surges reveal institutional money entering and exiting the market, thus letting you anticipate trend reversals;
- Volume moving averages and our patented modulated volume technology reveal buying and selling surges;
- A volume surge that appears as the index is rallying (i.e., occurs during a price advance) indicates that institutions are selling in large quantities. We call such volume spikes “selling surges”;
- A volume surge that appears as the index is declining (i.e., when prices are weakening) indicates that institutions are buying in large quantities. We call such volume spikes “buying surges”;
- The larger the magnitude of a volume surge – and the longer its duration – the higher the probability that a strong trend reversal is imminent;
- As a general rule, in order to stop and reverse an ongoing trend, a volume surge or accumulated volume has to be about equal to the volume surge (or accumulated volume) that initially prompted the current trend. In other words, in order to reverse a prevailing trend, a volume surge (or previously accumulated volume) has to “process” the prior volume surge (or previously accumulated volume).
- Our SBV indicator reveals buying (green indicator) and selling (red indicator) surges and discloses their magnitude and duration - thus indicating the potential strength of an anticipated trend reversal;
- Increasing VMA period allows you to see the accumulation of buying and selling volume on the same view and recommended for more conservative trading.
Decreasing the VMA period allows you to highlight particular volume surges - this is recommended for more aggressive traders. - The market will not turn after every volume surge – sometimes not even after the appearance of a significant surge. Instead, reactions to volume surges may be delayed. However, the more volume surges occur in one direction, the more pronounced we can anticipate a coming trend reversal to be:
- For instance, when two volume surges appear in the same direction and are associated with an SBV oscillator reading of 30%, this situation could lead to a trend reversal that is similar in strength as a turnaround generated by a single volume surge where the SBV oscillator shows a reading of 60%.
- In order to use the SBV oscillator to signal trade entry and exits, we invite you to experiment with various chart settings and critical levels for the SBV oscillator. It all depends on the current market stage, your type of trading, as well as your personal risk tolerance;
- The SBV oscillator reveals the magnitude and duration of volume surges in relation to the volume surges that occurred within a time span three times longer than the timeframe you are currently charting. For instance, if you are presently analyzing a one-day chart, a 3-day timeframe is used to define the magnitude and duration of the volume surges;
- All types of traders - even intraday scalpers - should be aware of the currently prevailing trend: Intraday scalpers and swing traders should know about the current short-term trend; Short-term traders must be informed about the direction of the mid-term trend; Mid-term traders have to know where the market might be going over the long run. This knowledge should be used in harmony with the prevailing trend. As a reference, we recommend the following chart views:
- Intraday scalpers may use 1- and 5-day chart views to define the prevailing trend;
- Swing traders may use 5- to 15-day chart views to define the prevailing trend;
- Mid-term traders may refer to 3-month to 1-year chart views to define the prevailing trend;
- Long-term traders may refer to charts spanning 4 - 7 years to define the prevailing long-term trend.
- Depending on your personal trading style, you could use the following timeframes to analyze SBV charts:
- 2-hour and 1-day views for intraday scalping and day-trading;
- 5- to 30-day views for swing and other short-term trading;
- 60-day to 2-year views for mid-term trades;
- 3- to 10-year views for long-term trades;
- For each view period, the chart automatically selects two volume moving averages (VMA1 and VMA2). You can change the VMA settings to suit your personal risk tolerance. Increase the settings for a more conservative trading approach; decrease them if you are willing to take more risk;
- You can evaluate the performance of any trading system using the SBV oscillator (such as a system you built in accordance with your personal trading style and risk tolerance) by scrolling back in history on our charts (use the arrow buttons found at the bottom left-hand corner of our charts). For selected e-mini contracts, an intraday 1-minute history is available dating back to September 1999.
For instance, assume you plan to trade as follows: Expectation of a 3-point profit; application of a 3-point stop-loss; take trades based on the first appearing volume surge characterized by an SBV oscillator reading of 40%. Prior to trading this approach, you could scroll back in history to see the win/loss ratio associated with this particular trading strategy.
Since volume surges are indicative of a large number of contracts (or shares) changing hands, the number of lost trades is small and the probability of winning trades is high.
© HGH Associated Press
7/16/2006
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